Final answer:
The devaluation of the U.S. dollar by an average of 18% would make U.S. exports cheaper to foreign buyers, potentially increasing demand for these exports and influencing the trade balance, possibly leading from a deficit towards a surplus or reducing the existing deficit.
Step-by-step explanation:
The question is focused on how an average 18% devaluation of the U.S. dollar against major trading partner currencies would affect the U.S. trade balance. As exchange rates fluctuate, the cost of domestic goods to foreign buyers, and the cost of foreign goods to domestic consumers, will change correspondingly. An appreciation of the dollar makes U.S. imports cheaper and exports more expensive, while a depreciation makes U.S. exports cheaper and imports more expensive.
Following a devaluation, U.S. exports would become less expensive to foreign consumers, potentially increasing the demand for these exports. For example, if a Ford pickup truck priced at $25,000 is sold in the United Kingdom, the pre-devaluation price at an exchange rate of $1.30 per British pound would be £19,231. After an 18% devaluation of the dollar, assuming the exchange rate to now be $1.08 per British pound (reflecting an 18% decrease from the $1.30 rate), the new price would be roughly £23,148. As a result, the U.S. might experience an increase in its trade surplus due to the increased competitiveness of its exports.
Hypothetically, before the devaluation of the dollar, if the trade balance was negative (a trade deficit), the cheaper exports post-devaluation could shift the balance towards positive (a trade surplus), or at least reduce the deficit. However, it is crucial to note that many variables affect trade balances and exchange rates, such as economic policies, market perceptions, and global economic conditions.